Th4.5: Problems Facing Policy Makers

Question 1

What are the three problems facing policy makers?

Answer 1

inaccurate information
risks and uncertainties
external shocks

Question 2

Inaccurate information

Answer 2

short term information, such as GDP figures for the previous month, are often inaccurate and may mean that the government is unable to see if there are problems within the economy

Question 3

II: Why is it hard to cut down on tax evasion and avoidance?

Answer 3

the government does not have the full picture on the level of avoidance, who it is that’s avoiding tax and the best way to reduce it

Question 4

II: What is the problem with the Bank of England making decisions based on past data?

Answer 4

it is possible trends in the economy may be changing so past data gives an inaccurate picture of where the economy is currently heading

Question 5

II: What is wrong with full cost-benefit analysis?

Answer 5

can be time consuming and costly and it is impractical for the government to gain every single bit of information they need

Question 6

II: What is wrong with interest rates being so low for such a long period of time?

Answer 6

past data is unlikely to give an accurate representation of the current economic climate which makes it difficult for the Bank to know which action to take

Question 7

Risks and Uncertainties

Answer 7

the government cannot accurately predict the future and so it is difficult for them to know whether extra spending is necessary e.t.c

Question 8

External Shocks

Answer 8

the government is unable to control and prepare for these external shocks - the best they can hope to do is lessen their impact

Question 9

ES: What is the problem with policies employed by policy makers?

Answer 9

they may not have their intended impacts and it may undermine current policies in place e.g Brexit delayed government plans to balance budget